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This Great Graphic was
posted on Business Insider by Sam Lo, who got it from
Neil McLeish, a fixed income analyst at Morgan Stanley. It
depicts total debt (household, financial firms, corporates and
government, divided by GDP). Most of the chart (yellow
line) tracks the US, though more recent European date is included
(green line).
The rising debt levels did not begin with the Reagan-Thatcher
era, but can be traced to the post-WWII reconstruction and
expansion, though there was a marked acceleration in the late
1970s/early 1980s. Contrary to conventional wisdom that has tended to focus
on things like European austerity and the decline of the ECB's
balance sheet, the chart shows that modest de-leveraging, that is
the reduction of debt relative to GDP, is in fact taking place in
the US, not Europe. Fed policies, such as
they are, are probably best understood as trying to facilitate
this process, while supporting growth.
Many economists, especially those influenced by the Austrian
School, have a profound distaste for debt, yet few seem to
recognize that de-leveraging is taking place, albeit slowly, in
the US, but not at all in Europe. Their Siren calls
of a dollar collapse seem misplaced especially to the extent that
it is predicated on the US indebtedness.